Suppose the Quote for a Five-Year Swap with Semiannual Payments

question 86

Multiple Choice

Suppose the quote for a five-year swap with semiannual payments is 8.50-8.60 percent. The means

• A)the swap bank will pay semiannual fixed-rate dollar payments of 8.60 percent against receiving six-month dollar LIBOR.
• B)the swap bank will receive semiannual fixed-rate dollar payments of 8.50 percent against paying six-month dollar LIBOR.
• C)if the swap bank is successful in getting counterparties to both legs of the swap at these prices, he will have an annual profit of ten basis points.
• D)none of the above

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Definitions:

Normal Balance

The standard side (debit or credit) on which increases to an account are recorded.

Financial Statement

Reports that summarize the financial condition and operations of a business.

Permanent/Temporary

Conceptual labels for different types of accounts in accounting, with permanent accounts being those that carry their balances into the next accounting period and temporary accounts being closed at the end of each period.